2016 House Price Falls Pave the Way for Modest London Market Recovery in 2017
- House prices fell 5.9% in Prime Central London (PCL) and 2.9% in Outer Prime in 2016
- PCL transaction volumes were down 35% in 2016 compared to 2015
- Rental values remained steady in 2016, falling less than 1% in PCL and growing 1.7% in Outer Prime

London, 17 January 2017 –  House prices fell 5.9% in Prime Central London in 2016, with transaction volumes down 35% compared to 2015. Outer Prime property prices experienced a similar reduction, falling 2.9% compared to 12 months prior.

These figures emerge following a turbulent year across the UK’s political landscape, and amidst reports that London’s prime property market was hit hardest. Still reeling from the impact of Stamp Duty Land Tax (SDLT) reforms in November 2014, PCL and Outer Prime were impacted by further SDLT changes in April 2016, which subjected landlords and second home owners to an additional 3% surcharge on purchases, intended to regulate – and arguably reduce - their activity.

With sentiment already weak, the UK’s decision to vote in favour of Brexit sent shockwaves through the market, weakening the Pound and signalling a gloomy forecast for the remainder of the year. However, Brexit was a surprise lifeline for PCL property. With Sterling in decline, buyers with US, Singapore and Hong Kong Dollars at their disposal took advantage of double digit discounts from favourable currency exchange rates, allowing them to absorb SDLT levies and secure relative value, ultimately boosting transaction volumes by 16% from Q3 to Q4. Consequently, PCL experienced a 1.8% price recovery in the final three months of the year.

Similarly, Outer Prime experienced a 1.5% recovery in Q4, albeit after a strong start to the year with price rises of 2.5% in Q1 of 2016. Prices were boosted in March by a surge in investor activity ahead of the introduction of the 3% SDLT surcharge, with transaction volumes up 108.5% compared to March 2015; however, for the year, transaction volumes settled at 25% below those recorded at the market peak in 2015.
While prices flattened out over the summer and eventually softened following the Referendum result, values made a marginal recovery and were up 1.5% in Q4.

By contrast, both PCL and Outer Prime lettings markets performed with much greater stability in 2016. PCL rental values in December were 0.7% down on where they were 12 months previously, while Outer Prime values were 1.7% up. The rush of investors in March resulted in an influx of stock in April, at which point rents softened slightly; however, values were restored by May, with tenants keen to take advantage of price reductions, which absorbed additional stock. By Q4, it was clear that PCL and Outer Prime lettings markets had avoided any significant challenges, and that the proportion of properties achieving over the asking price in PCL was its highest for 2016.

The percentage of lettings that achieved asking price in Outer Prime fell in Q4, which is marginally more than might have been anticipated at this time of year, but overall rents still rose 0.5% in Q4, painting a mixed picture. However, with rents in PCL and Outer Prime tracking just below the Retail Price Index (RPI), which is running at just over 2%, rental increases – albeit in single digits – are expected to resume over the coming twelve months.

Tim Macpherson, Head of London Residential at Carter Jonas, comments: “2016 brought a host of challenges to PCL and Outer Prime property, but the market was quick to adapt and seek out new opportunities, which could be a catalyst for a pendulum swing in favour of buyers as we enter 2017.

“Buyer uncertainty initiated the re-evaluation of asking prices, which saw the over-inflation of 2015 taper off, creating better value in the market, while the Bank of England safeguarded low interest rates until 2019, resulting in favourable buying conditions.

“The uptick in transactions and capital values in PCL and Outer Prime in Q4 indicates that a revival could be imminent in London’s core market of between £1-3million, as buyers seize the opportunity to uncover value in its upper echelons. However, unless Stamp Duty is revised, price growth at the top end of the market will be limited for the foreseeable future, as transactional friction proves too great a surcharge to overcome.”

Lisa Simon, Head of Lettings at Carter Jonas London, comments: “With such a minimal decline in rental values in PCL and growth in Outer Prime in 2016, coupled with evidence that rents are tracking the upward trajectory of RPI, we have every reason to be cautiously optimistic for 2017. Despite the unprecedented headwinds of 2016, the performance of lettings exceeded expectation, emphasising the solid foundation in which the market is grounded, which stands us in good stead for the year ahead.”

Click here for the Q4 2016 Prime Central London Market Update

Click here for the Q4 2016 Outer Prime London (South West) Update